Indeed, it's surprising that there is no sign of end-to-end encryption on Hangouts, while the competition (with marketshare) is getting there. iMessage had end-to-end encryption since the beginning. Whatsapp has end-to-end encryption on Android based on TextSecure (though it is still hard to see whether it's active). Telegram has support, though it's not the default.
In the meanwhile, Apple also has encrypted notes, phones that are encrypted by default, etc.
Google seems to focus purely on transport security.
No it doesn't. It just makes that a little harder to implement. You can set up a side channel between your own devices to sync that history. Or you can use double-encrypted key and just change the outer layer of that onion when a new device is added.
>You can set up a side channel between your own devices to sync that history.
Then
1. Some device would need to be logged in and online (not always true)
2. You'd need a way to authenticate the new device, which means not only do you need the other device on, but you need it close when first setting it up, and you'd need to manually transfer keys or something of similar bandwidth
3.Either all history would need to transfer, which is a bandwidth hog if history is large (although if device is close then you could transfer over Wifi direct or bluetooth or something), or that other device would need to kept online whenever I want to query history (currently, Google serves this function)
4. If you lose a device, there's no recovery (this is probably the main reason Google won't do it.)
If you really want it, there are apps that do E2E and support Google Talk. See https://chatsecure.org/
In the meanwhile, Apple also has encrypted notes, phones that are encrypted by default, etc.
Google seems to focus purely on transport security.